With 2024 officially in the history books, it's safe to say it wasn't a great year for Ford Motor Company (F +0.89%). Unfortunately, for investors, it's become more of a trend. Over the past 10 years, Ford's stock has declined 35% compared to the S&P 500's 186% gain.
It's been a rough ride, no doubt. The good news is that most of Ford's woes are fixable; management just needs to execute. Here are two things that Ford needs to fix in 2025 to reward investors going forward.
Big China problem
The problem in China, at least for foreign automakers, was when the government decided to heavily subsidize its electric vehicle (EV) industry. That created a long list of competitors with advanced EV technology and rock-bottom prices -- it worked almost too well.
Now, that long list of competitors has created a brutal price war, which has slowly put pressure on most foreign automakers as they can't compete on price, especially with EVs. It's even forced some countries to slap tariffs on Chinese EVs to protect their home turf, as the Chinese EV makers are now beginning to export their competitive vehicles around the world.
"I think you have to see the [Detroit Three] exit China as soon as they possibly can," said John Murphy, Bank of America Securities analyst, at his annual presentation of "Car Wars," a highly respected industry report, according to Reuters.
Ford may not fix this problem in 2025, but it can come up with a solution to start the process. Whether it's exiting the country, figuring out destinations to move its manufacturing from China, or somehow becoming more competitive and filling its production capacity in the region.
Whatever Ford does, it needs to figure it out fast because China is no longer the market the company thought would stand alongside North America in terms of profitability -- it's the opposite now.
NYSE: F
Key Data Points
Come one, come recall
One of the biggest speed bumps Ford hit in 2024 was, no doubt, higher warranty costs. Ford has led the U.S. industry in recalls for the past three years and may end up leading for 2024 when the data is collected. Those recalls and warranty issues can get expensive, and that was evident during Ford's second quarter.
During the second quarter, Ford's warranty costs increased by $800 million from the first quarter and reached roughly $2 billion. It's been a growing problem and a growing expense. It was a driving force in Ford missing second-quarter earnings estimates, with operating profit down 26% from the prior year.
"Warranty has been a growing issue at Ford over the last five years and has escalated over the past year," wrote Freedom Capital Markets analyst Mike Ward in a Thursday report, according to Barrons. "Between 2011 and 2019, warranty averaged 1.6% of revenue, but since the beginning of 2022, accruals have averaged 2.9% and exceeded 4% in the second quarter."
This is also a problem that Ford can't solve solely in 2025, but management has also reassured investors numerous times that it's been doubling down on quality over the past couple of years and that it will take time for those higher-quality vehicles to work into the vehicle mix and start impacting change. Most of the recalls were for older-model vehicles.
That said, investors can also keep an eye on warranty expense compared to revenue and see if it's improving throughout the next 18 months.
Buying opportunity?
The good news for investors is that Ford's problems are fixable, and it could provide investors with a buying opportunity after Ford's stock lagged the S&P 500 and even rival General Motors, which posted a 48% gain in 2024 compared to Ford's 18% decline.
The bad news for investors is that Ford's performance seems more of a trend. Over the past 10 years, Ford's stock has declined 35%. Ford's dividend yield is consistent, unlikely to be cut unless drastic circumstances appear, and it offers investors a 6.2% dividend yield. However, that juicy dividend might not be enough reason to own Ford until it starts fixing some major problems in 2025.
